Pension funds to invest in sovereign green bonds (SGrBs): How it will impact retail investors?

Pension Fund Regulatory and Development Authority (PFRDA) has said that it will allow pension funds to invest in sovereign green bonds (SGrBs). As per a report in PTT, the government is expected to issue sovereign green bonds in the second half of the current financial year.

The decision by the PFRDA to allow funds to invest in sovereign green bonds holds significant implications for retail investors, said Abhijit Roy, CEO, GoldenPi.

What are Sovereign green bonds? 

Sovereign Green Bonds, also known as Green Bonds are government-issued bonds used to fund environment-related projects. SGrBs offer an opportunity to earn sovereign-guaranteed returns, and are specifically meant for green projects.

Sovereign green bonds (SGrBs): Pension funds can achieve greater diversification

“By including these environmentally conscious debt instruments in their investment portfolios, pension funds can achieve greater diversification, spreading risk across various asset classes and promoting sustainable investments aligned with environmental, social, and governance (ESG) principles,” said Abhijit Roy. 

Retail investors, who are increasingly conscious of the environmental impact of their investments, can now align their pension contributions with their values, supporting projects that promote sustainability, renewable energy, and environmental protection.

Sovereign green bonds (SGrBs) suitable for retail investors’ pension needs

With sovereign green bonds typically issued with longer maturities, they offer stability and long-term returns, making them suitable for retail investors’ pension needs. According to Abhijit Roy, the inclusion of these bonds in pension funds reflects the growing global trend of focusing on sustainable development and climate change mitigation, providing investors with opportunities to contribute to environmentally responsible initiatives.

Moreover, the availability of sovereign green bonds in pension funds can raise awareness among retail investors about sustainable investing, encouraging a more informed and socially responsible approach to financial decision-making. 

Sovereign green bonds are considered safe investments 

As retail investors venture into this space, they may benefit from reduced market volatility, as sovereign green bonds are considered relatively safe investments with government backing.”

Last financial year, the government raised 16,000 crore from the maiden issuance of Sovereign Green Bonds (SGrBs) for funding public sector projects seeking to reduce carbon emissions.

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.


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Updated: 21 Jul 2023, 12:24 PM IST

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